Since the founding of the People's Republic of China, the pesticide industry has developed by leaps and bounds, and its production capacity has already ranked the highest in the world. At the same time, we should also see that the pesticide industry is still in a big but not strong situation, and the problems of irrational industrial structure, low concentration and small but scattered enterprises are still outstanding, which leads to inefficient resource allocations, redundant construction, overall overcapacity and disorderly competition in the market, which has caused certain troubles to the structural adjustment and the transformation of development mode of China's pesticide industry.
Merger and reorganization is an effective measure for enterprises to strengthen resource integration, realize rapid development and improve competitiveness, and it is also an important way to optimize industrial structure and improve development quality and efficiency. Through the merger and reorganization of enterprises, the existing scattered production capacity can be optimized and some surplus production capacity can be promoted to exit the market, which is conducive to forming an industrial development pattern dominated by advantageous enterprises and enhancing the coordination and self-discipline of industry development. It is conducive to the rapid expansion of the scale and strength of enterprises and the formation of a number of large enterprise groups with industry leading ability and international competitiveness; It is conducive to enhancing the core competitiveness of enterprises and industries, promoting industrial transformation and upgrading, and seizing the commanding heights in international competition.
1 General Situation of Merger and Reorganization of Pesticide Enterprises in China
Promoting enterprise merger and reorganization is an important measure to adjust the industrial structure, change the development mode and improve the industrial competitiveness, and it is also an important content to promote the transformation and upgrading of the industry. The State Council has successively issued the Opinions on Promoting Merger and Reorganization of Enterprises (Guo Fa [2010] No.27) and the Opinions on Further Optimizing the Market Environment of Merger and Reorganization of Enterprises (Guo Fa [2014] No.14), etc. In 2016, the Ministry of Industry and Information Technology proposed that in principle, no new pesticide raw drug manufacturers should be added, and "returning one to increase one (raw drug)" and "returning two (preparation)" should be implemented.
As early as 2010, the merger and reorganization of pesticide industry was already advancing. For example, Zhejiang Xin 'an Chemical has successively acquired 18 companies including Zhenjiang Jiangnan Chemical, Sichuan Aba Xilong, Kaihua Synthetic Materials, Hangzhou Chemical Research Institute, Xinyi Zhongkai and Ningxia Tianxi (Sanxi); Since 2009, Shenzhen Nuopuxin has successively participated in/controlled pesticide preparations and plant nutrition brand systems such as Shandong Zhaofengnian, Qingdao Xingpai, Changde Bangda, Dongguan Shipuwang, Zhonggang Taifu, Jinan Lvbang Chemical and Fujian Xinnong Zhengda.
With the implementation of the newly revised Pesticide Management Regulations and the increasing pressure of environmental safety supervision, the pesticide industry began a new round of reshuffle. At the beginning of 2020, the Ministry of Agriculture and Rural Affairs issued the Key Points of Pesticide Management in 2020, encouraging enterprises to merge and reorganize, and withdrawing from a group of small pesticide enterprises with weak competitiveness. In 2020, affected by the COVID-19 epidemic and other external factors, the process of merger and reorganization projects was suspended, and the number decreased compared with previous years, but the mainstream development direction remained unchanged.
There are three modes of pesticide merger and reorganization, namely, "strong alliance", "big fish eating small fish" and "quasi-marketization of government + market". Typical cases are as follows:
1.1 Market-Oriented "Strong Alliance" Integration Model
Market-oriented merger and reorganization mode of "strong alliance" is generally two large pesticide enterprises with similar size, which form "strong alliance" due to some special reasons. On this basis, the merger of the two large pesticide enterprises can be realized through various capital operation modes such as additional issuance and share swap in the secondary market. The merger of Limin shares and Weiyuan Biochemical, and the merger of Fuhua Tongda and Jiangshan shares all belong to this type.
1.2 Market-Oriented "Big Fish Eating Small Fish" Model
Market-oriented "big fish and eat small fish" mode generally means that superior enterprises improve their ecological circle in order to enhance their competitiveness. By absorbing small enterprises to make themselves strong, small enterprises can also avoid the impact of large enterprise flow.
In 2019, UPL (India United Phosphating) acquired 100% equity of Yanhua Yongle Biotechnology Co., Ltd. and 25% equity of Beijing Yanhua Yongle Biotechnology Co., Ltd. through its branch in Hong Kong, which belongs to this model. On the one hand, UPL entered China, the market most valued by UPL, by merging Yanhua Yongle, and obtained resources such as distribution channels and product registration certificates of Yanhua Yongle in China; On the other hand, Yanhua Yongle will share UPL's global business channels, technology and sufficient financial resources. Meanwhile, UPL plans to optimize the production facilities of Laoting Yongle to expand the company's global production capacity.
1.3 Based on the Government + Market-Oriented "Quasi-Market-Oriented" Integration Model
In the "quasi-market-oriented" integration mode based on government + market orientation, the government plays a leading role in merger and reorganization, which is conducive to giving support and guarantee from the policy, so as to achieve the macro-benefit and micro-economic goals, accelerate the pace, improve the efficiency and to some extent, control the market risks in merger and reorganization.
China National Chemical Corporation merged Maxim Forrest Gump and Syngenta, which is a case in which the main body with capital advantage took the opportunity to merge strong enterprises. During the period when China National Chemical Corporation promoted the integration of Andaomai and Syngenta, it promoted the integration of Sinochem Group and China National Chemical Corporation through government guidance.
2 Analysis of Merger Obstacles and Advantages
2.1 Problems in Merger and Reorganization of Pesticide Enterprises
2.1.1 The Formulation and Implementation of Early M&A Strategy The design of M&A target, the evalsuation of M&A value, the ability to adjust M&A, the calculation of M&A quotation, the design of ownership structure, and the introduction of the acquired subject talents, all need to be carried out with caution. If the judgment is wrong, it will increase the risk of merger and reorganization.
2.1.2 Approval Items Involved in Merger and Reorganization The merger and reorganization of an enterprise involves many items such as the name of the enterprise, shareholders, legal representative, place of registration, business scope, production license, land use, fire protection, production safety, environmental protection and so on, which need to be approved by relevant administrative departments. If the newly introduced project is different from the original enterprise format, and the industry has changed, it needs to be re-examined according to the new enterprise and new project, which takes a long time and is difficult to approve.
2.1.3 The High Cost of Asset Transfer of Merger For the merger projects involving listed companies, according to the requirements of CSRC to reduce related transactions and standardize corporate governance, it is necessary to integrate related enterprises in the merger and reorganization, which will result in integration costs. Equity integration is generally required before merger and reorganization. Although there is no actual cash flow, a series of expenses such as value-added tax, business tax and deed tax will also be incurred in the process of asset evalsuation, transfer and transfer.
2.1.4 Later Implementation After Integration Overall integration of enterprises, business integration and integration of listed companies are all difficulties in the process of enterprise restructuring and integration. Taxation, land use, debt disposal, adjustment of production process, adjustment of organizational structure and placement of employees still restrict the merger and reorganization of enterprises, so it is necessary to take targeted measures to guide and support them. The reorganization between two enterprises or groups and the integration of culture are difficult points. The placement of employees is not only related to the smooth progress of enterprise merger and reorganization, but also related to social security and stability, and needs the support of the government and society.
2.1.5 Problems of Both Sides in Merger and Reorganization For example: ① Most pesticide enterprises in China are small and medium-sized private enterprises, and most entrepreneurs are hard to accept the change of leadership after merger and reorganization, which is more obvious in the "strong alliance". ② Most pesticide enterprises in China have insufficient group management ability. For the recovery of enterprises acquired due to difficulties in survival, besides cash flow, they need group management ability and high-quality management talents, otherwise they may face the problem of 1+1 < 2. ③ There are many pesticide production enterprises in China, and some enterprises have historical debts in safety and environmental protection, which may increase the burden of well-developed enterprises.
In a word, there are many uncontrollable factors and risks in merger and reorganization. Through investigation, enterprises also reported the difficulties encountered in merger and reorganization. 65% of enterprises thought that the integration of enterprises was difficult, 55% thought that the synergy value of merger and reorganization was limited, 38% thought that it was difficult to raise funds for merger and reorganization, and 16% thought that the target enterprises opposed it.
2.2 Favorable Conditions for Merger and Reorganization of Pesticide Enterprises
The state regards the promotion of merger and reorganization of pesticide enterprises as one of the important measures to eliminate backward production capacity and increase energy conservation and emission reduction, and advocates "strong alliance", "big and small merger" and even cross-industry integration of pesticide enterprises. Listed companies have become the main force in promoting merger and reorganization because of their characteristics of high-quality enterprises and additional financing in the secondary market. According to incomplete statistics, among the domestic listed sectors, there are 48 listed companies involved in pesticide business, and some enterprises are planning to go public. By the end of November, 2020, there were 360 A-share and B-share listed companies in chemical industry in China, many of which involved fine chemicals, and may also cross the pesticide field.
3 Follow-up Trend Prediction
China's pesticide enterprises are mainly small and medium-sized enterprises, which need to be driven by policies so that scattered, chaotic, weak and small products can gradually withdraw from the market. Among more than 80 enterprises surveyed, 80% believe that due to stricter safety and environmental protection, high pesticide registration cost and intensified competition in the industry, it is expected that the merger and reorganization of pesticide enterprises in China will be further deepened during the 14th Five-Year Plan period. First of all, the release of new production capacity will intensify competition, dilute profits, and promote enterprises to go out or restructure. Secondly, market opportunities may promote new cross-border integration. For example, the planting and promotion of genetically modified crops will promote the integration of pesticide enterprises and seed enterprises; Integration of biological pesticide enterprises and chemical pesticide enterprises; Intermediate and other fine chemical production enterprises extend the industrial chain and merge with pesticide enterprises. In addition, the international trade of pesticides is changing from single product sales to technical guidance and technical services, and the need to set up branches, sub-packaging plants and preparation plants overseas may increase. On the whole, it is predicted that the merger and reorganization of pesticide enterprises in China will go hand in hand with the elimination of backward production capacity during the 14th Five-Year Plan period. The merger and reorganization intensity of pesticide enterprises will increase and the industrial concentration will be significantly improved.
4 Policy Recommendations
Merger and reorganization of enterprises is the trend of industrial development to a certain stage. With the continuous advancement of the national supply-side structural reform and stricter safety and environmental protection policies, the industry will be promoted to develop in a big and strong direction. In order to promote the coordination and unification between the merger and reorganization of pesticide enterprises and the development of pesticide industry, the suggestions are as follows:
4.1 Respect for the Principal Position of Enterprises
Effectively mobilize the enthusiasm of enterprises, make independent decisions by enterprises, voluntarily participate in mergers and acquisitions, adhere to market-oriented operation, and avoid "pandering" against the wishes of enterprises; Give full play to the decisive role of the market in resource allocations, speed up the establishment of fair, open and transparent market rules, solve outstanding problems faced by mergers and acquisitions of enterprises, and guide and encourage enterprises of various ownership to participate in mergers and acquisitions independently and voluntarily.
4.2 Perfecting the Policy Environment of Merger and Reorganization
Deepen the reform of "streamline administration, delegate power, strengthen regulation and improve services", continuously improve the efficiency of examination and approval, further improve the market system conducive to enterprise merger and reorganization, gradually eliminate the market barriers, and improve the policies of finance, taxation, land and staff placement.